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Sunday, December 28, 2008

Amana stays ahead of faith-based funds

In a dire year for mutual funds, the Amana Trust Income Fund, the main Muslim investment fund, has trumped those from all other faiths in the US by losing only 25.8 per cent of its value for the year – half the average 44 per cent loss for US stock funds.

The two Amana funds, which invest according to Islamic principles, are seeing such strong inflows that they are having difficulty finding enough stocks to buy.

Nick Kaiser, the manager for the funds, said that Amana took in $40m last month alone, with more than half of that from non-Muslim investors who are chasing the funds’ strong returns.

Amana has benefited from its avoidance of financial stocks that are forbidden under Shariah religious law – which eschews interest-paying investments. However, the Amana funds also outperformed in 2006 and 2007, before the onset of the financial crisis.

Amana Trust Income just squeaked past the Roman Catholics’ Ave Maria Rising Dividend fund, which lost 26.4 per cent of its value during the year.

The Ave Maria funds invest according to Catholic criteria, which includes avoiding companies that give employees same-sex partner benefits. Unlike most faith-based funds, Ave Maria does not avoid alcohol stocks because the Bible does not proscribe alcohol.

Amana’s other fund, the Trust Growth fund, was third best performer for the year, losing 31 per cent. The performance data, from Morningstar the fund tracker, is to December 15 and excludes bond funds and funds smaller than $1m.

Amana, which manages $1.2bn, does not buy stocks that make money from alcohol, gambling or speculation, pornography, pork processing or charging interest, ruling out almost all financial stocks, said Mr Kaiser.

Mr Kaiser, an Anglican who is advised by a board of Islamic representatives, said more than half of all stocks were eliminated by using Islamic criteria. Taking into account his investment criteria, there are about 220 stocks on his recommended list, but he already owns most of them. “With all the inflows, we are all cashed up and there are only about 10 stocks left for us to buy right now,” he said.

The largest faith-based fund, the $1.6bn Thrivent Large Cap stock blend, lost close to 40 per cent for the year. The fund is part of Thrivent Financial for Lutherans, a non-profit which manages $65bn in funds and separate accounts for Lutheran church members.

Faith-based funds have grown in popularity in recent years as investors have sought to place their money in accordance with the principles of their religious faith.

The increased use of computerised screening has also made it easier for managers to identify stocks that are in line with their religious criteria.

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"There are no restrictions for foreign investors to access Islamic securities, bonds and unit trusts in Malaysia. Non-residents are free to invest in Malaysia in any of these products. There are also no restrictions on the repatriation of capital, profits and income earned from Malaysia."[Securities Commission Malaysia]